A Delicious Look at the Cheesecake Factory

White chocolate raspberry truffle ... Godiva chocolate cheesecake ... mmmmm!

While casual dining chain The Cheesecake Factory (CAKE) has been delighting their diners for years with their delicious desserts and creative culinary concoctions, investors in the company have not been so satisfied lately.

The Cheesecake Factory released 4th quarter earnings a couple weeks ago (see conference call transcript). I don’t know about you, but I’m still hungry for more. Comparable same store sales, the metric used most often to gauge the performance of restaurants, were down 0.4% for the fourth quarter. The company stated, “if not for bad weather” comps would have come in at 0.1%. Sounds like someone need to tell chairman David Overton that bad weather is no excuse, not for being late to pick up your date and not for missing Wall Street’s earnings estimate by four cents.

The company operates more than 150 stores, mostly under the Cheesecake brand name. There were a few positive phrases to come out of their conference call today. First, we like the fact that they reduced their projected new store openings from 21 in 2008 to “7 to 9 this year”. The company aims to get back to its roots of quality service, high quality food, and an incredible dining experience. Second, CAKE board approved an additional 5 million share repurchase program. This has historically been viewed as a positive by the big-wigs on Wall Street, and we need all the positives we can get now that their stock price is roughly half what it was not two years ago.

The past is the past though right? Let’s give them the benefit of the doubt on this ‘bad weather’ phenomenon. Looking forward, The Cheesecake Factory is projecting 2008 earnings of $1.11 to $1.16 for 2008. At their current price of $20ish dollars per share, they are trading well below their historical P/E that rocketed their stock up through the late 90’s and into the millennium. On another chocolaty-delicious note, Thomson Financial polled analyst are forecasting $1.29 per share for 2008.

Casual dining restaurant have always been viewed as the benefactor or our recent Fed rate cuts. Consumers seem to have more discretionary income, and willing to spend it, when rates are cheap. So where do you see them going to spend that money. CAKE has several delicious competitors. Chili’s, Romano’s Macaroni Grill, and the Olive Garden are all battling for that same dollar. The toughest choice for this investor isn’t where to go eat - the cheesecake makes that decision for me - it's when I should be getting into this stock.

Disclosure: none